- Trade tariffs dragged 1H25 vehicle sales in Europe and North America as vehicle affordability deteriorates
- Supply chain disruptions to deepen; we now project a decline of 2-3% in US and Europe new vehicle sales in 2025
- Demand recovery unlikely to be significant in the near term despite some tariff offsets
- Remain cautious on the global auto industry; estimate vehicle sales to contract by 1% in both 2025 and 2026
Vehicle sales in western markets feeling the tariff heat. The global auto market is shifting gears as tariffs and political uncertainty weigh on major auto market sales. According to COX Automotive, US light vehicle sales declined 4.2% y/y in June, following a 2.5% growth in May. 1H25 ended with a 4% y/y gain in light vehicle sales, driven largely by tariff-induced pre-emptive buying. Meanwhile, US electric vehicle (EV) sales posted two consecutive months of decline since April, signalling that higher vehicle prices are starting to dampen consumption, as the average transacted prices of all vehicles/EVs have risen by 0.3%/3.8% YTD in May. In Europe (EU + UK + European Free Trade Association), car sales totalled 5.6mn units in 5M25, remaining flat y/y, as macroeconomic uncertainty and tariff concerns curtailed consumer demand. Notably, petrol and diesel vehicle sales each declined by more than 20% y/y over the same period. EU car CPI index stood at an elevated 125 in Apr 2025, reflecting persistent concerns over vehicle affordability.
Major vehicle market shipments to slow in 2H as disruption deepens. Global auto supply chain disruptions are expected to intensify in 2H25, especially as the US concludes further trade negotiations. US consumers are likely to adopt a wait-and-see approach amid uncertainty surrounding trade policy, new vehicle prices, and model availability. New vehicle inventory in the US fell to 2.6mn units in May (average of consensus). Hence, full-year new vehicle sales in the US are projected to reach approximately 15.5mn units (seasonally adjusted) in 2025, representing a 2.5% y/y decline, while Europe’s sales are forecasted at about 12.7mn, down c.2%, suggesting that the bulk of the decline will be concentrated in 2H25. On the other hand, China’s auto industry continues to show resilience, especially the NEV sector, which is projected to post a y/y sales expansion of 17% to about 9mn units, even as intense price competition persists.
Demand recovery unlikely before 2026. The global auto industry is facing mounting headwinds as real demand weakens in response to rising vehicle prices, reduced affordability, and ongoing supply chain stress. Some mitigation may come from US policy measures, such as tariff offsets for domestically assembled vehicles, allowing duty-free parts imports of up to 3.75% of a car’s manufacturer’s suggested retail price until Apr 2026 and 2.5% until Apr 2027. Nonetheless, a material demand recovery in the US remains unlikely in the near term unless tariffs are eased, or trade deals are revised. As a result, we forecast global vehicle sales will decline by around 1% y/y in both 2025 and 2026.
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